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Current State of the American Economy

The deficit in the federal unified budget continued to widen (Board of Governors, Federal Reserve System, 2004, p. 9)

The United States trade deficit in goods and services registered $548 billion at an annual rate in the first quarter; $46 billion larger than in the fourth quarter of 2003 (Board of Governors, Federal Reserve System, 2004, p. 12)

The Beige Book issued by the Board of Governors of the Federal Reserve (2004a) in late-July reported that economic growth was moderating in half of the Federal Reserve districts. The Beige Book (2004) reported further that: "Retail sales were widely cited as having slowed; in particular, most districts reported that auto sales were flat to down" (p. 1).

Principal Concerns of the Federal Reserve

Federal Reserve Chair Greenspan's (2004) testimony before the Committee on Banking, Housing, and Urban Affairs, United States Senate in July indicated that the Federal Reserve Boar was no longer concerned about the potential of deflation, but that the Federal Reserve Board was concerned that core inflation levels could begin to increase in the last-half of 2004 and in 2005. Dr. Greenspan (2004) stated in his testimony that labor cost increases were not a worry in the summer of 2004, and that, if labor cost increases remained at the present modest level, they would not pose future problems related to inflation. He also indicate in his testimony, however, that the Federal Reserve Board would act quickly and decisively if sharper increases in labor costs threatened to lead to unacceptable increases in the rate of inflation.

Dr. Greenspan (2004) gave no indications in his testimony that the Federal Reserve Board was especially interested in increasing levels of employment in the United States. In a speech to the Exchequer Club in Washington, Vice Chair of the Board of Governors Roger Ferguson (2004) ...